Moody's: Lebanon's draft budget will not make a major change in the debt route

Economy and stock exchange

Moody's said the draft of the Lebanese budget for 2019, aimed at tackling the difficult financial situation by cutting spending, increasing revenues and refinancing treasury bills, would not likely make a major change in the country's debt course.

Lebanon, which is heavily indebted, unveiled a plan to control its public finances in late May, but faces serious difficulties in restoring investor confidence it needs to avert a crisis.

The budget, which was sent to parliament for discussion and approval, aims to reduce the fiscal deficit to 7.6 percent of GDP from 11.5 percent in 2018, including a shift to a first surplus of 1.7 percent from a first deficit of about 1 percent of GDP .

"This adjustment is made mainly through reduced spending and a limited increase in revenue," said Elisa Parisi Capone, analyst at Moody's in a May 30 customer note.

"According to our expectations of debt, the implicit adjustment in the initial budget and the earlier announcement of interest savings by refinancing high-yielding treasury bills through other low-interest treasury bills with the participation of the central bank and commercial banks are still insufficient to change the debt course, Interest rate and growth rate. "

Moody's said its basic case scenario was that the first surplus would reach 1.5 percent of GDP in 2019, and would continue to increase to 3.5 percent by 2023.

However, assuming interest rates reach 10-11 percent and there is little desire to further cut the wage bill for fear of provoking popular opposition, the budget deficit will remain close to 7-7.5 percent, Moody's said.